Kentucky universities ask to be let out of pension plan as costs become unsustainable

Regional universities across Kentucky are asking lawmakers to move new employees of their institutions into a new plan, more like a 401k, to ensure pension costs do not continue to hinder university budgets.

On Thursday, the House State and Local Government Committee passed House Bill 358 which would place all new hires into a university-sponsored defined contribution system rather than the pension plan, freezes contribution rates for the next year so costs don’t continue to rise, and gives universities a way out of the system and mechanism to pay off their unfunded liabilities within the system over a set number of years.

The legislation comes as a result of work by the presidents of the regional universities as increasing pension costs are becoming a huge budget issue.

Northern Kentucky University (NKU) President Ashish Vaidya stated the university will be unable to achieve goals for students and the region under the current system.

Rep. James Allen Tipton, the sponsor of the House Bill 358, said the legislation gives the universities an opportunity to make decisions about what is the best option for them moving forward after seeing their liability in the system and deciding whether or not to get out of the pension system completely.

Under the bill, the regional universities would see:

All new hires into the system moved into a university-sponsored defined contribution plan

A one-time window for existing Kentucky Retirement System (KRS) employees to opt-out of their current plan and go into the more portable university-sponsored plan

A study showing the unfunded liabilities for each regional university based on active, inactive, and retired employees

An option to get out of the system completely and a set number of years to pay off their unfunded liabilities with a 5.25% interest rate

A freeze to the current 49% contribution rate over the next year and extend it while the actuarial analysis is being conducted so they don’t see their rates rise to 84% that other employers in the system are currently paying

While there was not an actuarial analysis presented with the bill, some lawmakers argued it would be difficult to know the full fiscal impact to the system before seeing how many employees choose to opt out of the system. However, it was stated KRS would be working on such an analysis.

The impact of a higher employer contribution on each regional university

House Bill 358 passed through the committee with 12 members voting in favor, two against, and four members passing on the vote.

In voting for the bill, Rep. Jason Nemes of Louisville stated he feels middle- and lower-class families have been priced out of attending college and believes this bill is an important step forward so the state can make higher education more affordable by lessening their burden so those costs aren’t passed onto students.